Anyone closely following the financial regulation effort knows about the surprising anger of centrist Senate Republicans regarding the initially proposed $19 billion tax on big banks and hedge funds. Certainly, most Republican displeasure directed towards Democrats for creating a tax during the wee hours of Friday morning as America slept is understandable. They didn't support the regulation to begin with, and then their opponents wanted to pay for it by jeopardizing credit. But the anger from the Republicans who supported the bill initially was odd, because they should have expected taxes to rise to pay for the massive spending that the new bill would involve.
Some commenters were displeased with this point. They believe Sen. Scott Brown (R-MA) and the other centrists were right to denounce the tax. But why would they vote for it in the first place without knowing how much it would cost and how it would be paid for? When you create giant new regulators and 2,300 pages of new duties for bureaucrats, of course it's going to be expensive. And it's got to be paid for somehow. The fact that these Senators voted for the bill in the first place without figuring out how to pay for it was fiscally irresponsible.
But it's utterly unclear where these centrist Senate Republicans could have otherwise thought this money would come from. The bill they voted in favor of included no spending cuts or new taxes. Perhaps they believe in the deficit fairy, a benevolent creature who magically funds Congress' every whim without new taxes, spending cuts, or federal borrowing. Unfortunately, no such being exists.
This is an important point, because the Republican Party was recently born again as the voice of fiscal responsibility in Washington. Their comfort with deficit spending during President George W. Bush's reign is gone. And ultimately that's a good thing for America, if they're serious about it. So perhaps it would be helpful to provide three easy steps lawmakers can take to make sure they're exercising fiscal responsibility, since the concept is new to so many of them:
When considering a new piece of legislation, outside of the budget:
1. Decide if you think a bill will be worthwhile
- If yes, move to step 2
- If no, vote against the bill
2. Determine the total cost of the bill (or politely ask the Congressional Budget Office to figure it out, since they're good with numbers)
3. Figure out how to pay for the bill by either raising taxes or cutting existing spending by the amount of that total cost
- If you want to do one or both, amend the bill accordingly
- If you want to do neither, vote against the bill
This probably seems like a pretty easy process. Yet for decades members of Congress haven't managed to figure it out on their own. I hope spelling it out will help.
Of course, getting back to those centrist Senate Republicans, it's now pretty clear that their gripes had nothing to do with fiscal responsibility. By accepting the compromise arrived at last night, it's obvious that they're okay with higher taxes after all -- they just didn't want the cost isolated to the biggest banks and hedge funds. Instead, the burden will be shared by a bigger pool of banks, those with $10 billion in assets or more (rather than $50 billion or more), and the American taxpayer, who will have to cover the billions in bank bailout reciepts no longer paying down the deficit. Of course American consumers will ultimately pay for the bank tax too, since the fees will just be passed onto them by banks. Hedge funds escape entirely.